It was just under two months ago that my Special Situations portfolio bought more Tile Shop (NASDAQ:TTS). I'm buying more again this week, before we hear the latest earnings news. Of all the stocks in my portfolio, Tile Shop offers the best chance for serious gains over the next five to 10 years.
The prospects at Tile Shop look fantastic. At year-end, the company had just 90 stores in the U.S., and it looks to expand that count by 20 this year, unit growth of 22%. The U.S. should be able to easily support 400-plus stores, so there's a long runway for growth. That buildout should occur over the next eight to 10 years, providing years of supercharged growth for the stock.
Same-store sales should remain robust in 2014, even if they're lower than what the company put up in 2013 (12.4%), a real rebound year for the housing market. The company is projecting comps of 5% to 7%, a solid performance from a growing concept. Undoubtedly, the horrid weather of early 2014 will negatively affect comps, so the first-quarter report -- coming up next week -- may look weaker than the company can do for the year.
Tile Shop should benefit from a cyclical improvement in the economy and housing as well as the secular move toward tile in homes. So the big picture still looks very attractive here.
And as I mentioned in my last buy recommendation, I will continue watching the governance issues at Tile Shop. This issue is at the top of my list of concerns for the company. That said, I was pleased to see an insider, a director, buy $1.5 million in stock in February at prices around today's. Two other directors also made sizable buys in late February. In light of the recent governance issues, these purchases provide a needed reassurance.
Foolish bottom line
I'll be adding another $500, not quite a full percentage point, to an already-overweight position, which is 8% of my Special Situations portfolio. I'll have more great investment ideas in the next few days, so follow me on Twitter (@TMFRoyal) to get the latest.
Jim Royal owns shares of Tile Shop Holdings. The Motley Fool recommends and owns shares of Tile Shop Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.